Next Generation Supply Management Defined

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Daily Archives: May 27, 2010

I have to say that I’m worried after reading grow, grow, grow in the special report on innovation and emerging markets in the April 17th edition of The Economist. Near the end of the article we are told, point blank, that the best companies in emerging markets treat “talent” as a supply chain that needs to be relentlessly managed, not an isolated problem that can be solved on a piecemeal basis and that firms invest heavily in creating “educational ecosystems”.

While the first thing we do is slash the training budget every time money gets tight, companies in eastern emerging countries dispatch managers to give speeches at Universities. For example, GE has charged its top ten managers in China with cultivating relations with a particular university where they can spot bright youngsters and treat them to campus tours and scholarships (that will grow the brand and attract these future superstars).

While we expect unreasonable exceptional performance for a meager base salary and verbally lash out at anyone who doesn’t exceed her performance metrics by at least 10%, eastern emerging companies celebrate good performers. Haier prominently displays photographs of good performing managers, celebrates outstanding innovators in public ceremonies, and names new products and business innovations after their creators.

While we still assign undue praise to the University you attended instead of the degree you earned, your GPA, or, more importantly, what you actually learned, Infosys has adopted the mantra of “no caste, no creed, only merit” for its modern campus in Mysore. Furthermore, to ensure its employees had a better chance of not only climbing the ladder but becoming a millionaire than if they worked for a foreign multinational, Infosys was one of the first Indian companies to issue stock options.

And while we are the first to walk our best talent out the door every time the market dips, even though we just told them they were our most valuable asset the day before (as we, obviously, lied through our teeth), companies in emerging countries, who are experiencing much more rapid turnover than we need to deal with, will stick by their talent through thick and thin — cutting staff is the absolute last resort, not the first.

All told, it looks to me like we’re going to lose the talent war, which means that we’re also going to lose the innovation war, which we were supposed to win by outsourcing all of the manufacturing and back office to focus on our “core strengths” which, apparently, is middle management, junior art directorship and telephone cleaning, as that’s all we will be able to do if we don’t start focussing on talent, the true producer of innovation.

Getting straight to the point, in response to how does emergence from the recession affect supply chain flexibility, Andrew Vaughan noted that there is a dynamism in the whole supply chain piece and therefore you have got to keep reviewing it constantly. Raw material shortages can bring an end to a product’s life, earthquakes can take out factories, and bankruptcies can take out suppliers literally overnight. One day your supply chain is running like a well-made Swiss timepiece … the next day it’s brought to a screeching halt as your fine tuned Ferrari slams into a brick wall.

Even if you, as Colin Davis points out, maintained a reasonably broad supply chain during the recession and maybe compromised some of the commercial advantages you could have taken in those situations so that you can then call on people as you go forward, if your suppliers or partners are in worse shape than you are, despite their good intentions, they might not be able to respond to the call. The safety net you think you have can be taken down at any time. Just like that information flow you painstakingly set up can disappear over night if you built it on a proprietary copper network which was just dug up and sold for scrap.

Furthermore, you need to keep an eye on the entire supply chain, which, as Andrew Vaughan points out, doesn’t necessarily end when you get the product delivered to the installer or customer. For many products, there is also the service chain to consider. Whereas many customers will just as happily trade up to a new model when their current cell phone dies, most customers want to keep their cars and high end (Apple) computers for a few years (or more). You need to be able to provide them with parts and services quickly when they need maintenance or repairs … because it all affects your image as a provider of quality goods and services.

Furthermore, not only do really advanced procurement supply chain organisations understand today the ripple effects that a natural disaster, or an epidemic, has on their overall supply chain, and take immediate preventative action even though only a sub-tier supplier to their main supply base is directly affected, as Martin Hogel notes, but these organizations also know that a ripple effect can start anywhere … even in the retail stores. For example, retailers can notice that product sales for a new category of product, like e-readers, is heating up across the board. They place orders into distributors for more product, who place orders into manufacturers for even more product, who place orders into component suppliers for much more flash memory, which is in limited supply. In this classic bullwhip effect scenario, the flash manufacturers will quickly sell out of all available inventory, and an artificial shortage will be created in the market. Those manufacturers who are not vigilant will not be among the first to get their orders in, their products will be delayed, and this will likely result in lost sales.

All in all, the need for eternal vigilance — in addition to strategy, customer obsession, and a strong supply base — is pretty clear and the debate was quite an interesting one. If you haven’t yet done so, and can spare the time, I’d strongly recommend that you check the entire debate on the price of flexible supply chains and join in the discussion. It’s your supply chain on the line.